Appeals Court Rules Foreclosures are "Debt Collection" Under FDCPA

The U.S. Court of Appeals for the Sixth Circuit Monday handed down an opinion that defined mortgage foreclosure actions as “debt collection” under the Fair Debt Collection Practices Act (FDCPA), reversing a lower court decision.

In Glazer v. Chase Home Finance, LLC, et. al., the appellate panel said that third parties initiating foreclosure actions must comply with the provisions of the FDCPA.

The case was brought by plaintiff Glazer after he inherited a home that still had an outstanding and active mortgage serviced by Chase. After six missed payments, Chase engaged with law firm Reimer, Arnovitz, Chernek & Jeffrey Co., LPA (RACJ) to begin foreclosure proceedings.

In a complicated twist indicative of the time, Chase did not own the mortgage in question. In fact, the bank had not even originated it. The loan was owned by Fannie Mae and Chase had been assigned as the servicer from the originator. When RACJ moved to foreclose, it represented as owner of the loan Chase.

When Glazer asked for verification that Chase was the owner, he claims RACJ did not comply, prompting a lawsuit seeking FDCPA damages. A district judge in Ohio sided with Chase and RACJ and dismissed the case, which Glazer appealed.

The Sixth Circuit panel said Monday that Chase was not a “debt collector” under the FDCPA. But its decision noted that RACJ was, writing:

…we hold that mortgage foreclosure is debt collection under the, Act. Lawyers who meet the general definition of a “debt collector” must comply with, the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function. In this case, the district court held that RACJ was not engaged in debt collection when it sought to foreclose on the property. That decision was erroneous, and the judgment must be reversed.

The case will now go back to the lower court for further consideration.